Danish Central Bank Examines Revisions to Crisis Management Rules
The Central Bank of Denmark analyzed the recent revisions to the crisis management rules, including the Bank Recovery and Resolution Directive or BRRD 2. In the analysis, the Central Bank highlighted that the new rules make it more likely that senior unsecured creditors will have to contribute to the crisis management of a failing credit institution. The Bank notes that, along with the resolution authorities, the senior unsecured creditors must also be aware of this risk and should take it into account in the risk management process.
The analysis published by the Central Bank noted that crisis management framework is still being developed, with a revised crisis management directive (Bank Recovery and Resolution Directive or BRRD2) having recently entered into force in Denmark. Danish FSA has, so far, required that Danish banks must meet their whole MREL requirement with subordinated liabilities—that is liabilities that bear losses before senior unsecured claims. With the revised crisis management framework (BRRD2), a maximum limit has been introduced for the subordination requirement. This means that there are limits to how large a share of the minimum requirement for owns funds and eligible liabilities (the MREL requirement) the authorities can demand must be met with subordinated liabilities. Subordinated liabilities include capital instruments and senior non-preferred debt. The new maximum limit for the subordination requirement makes it more likely that senior unsecured creditors will have to contribute to the crisis management of a failing credit institution. Contributions may take the form of the liabilities covered by the creditors’ claims being written down or being converted. Senior unsecured creditors now also risk having to make contributions in situations that are regarded as normal loss scenarios from a crisis management perspective. Senior unsecured creditors include large corporations with deposits of more than EUR 100,000.
Where the resolution authorities perform a bail-in in a crisis situation, they may, in exceptional cases, exempt liabilities from the bail-in. It is important that the resolution authorities use such special bail-in exemptions sparingly as a tool for exempting some senior unsecured creditors from having to contribute to the crisis management. A liability should only be exempt from bail-in if there is a very weighty reason for this, such as a consideration for financial stability. The cornerstone of the crisis management framework is that investors and creditors of an institution must bear the losses. Thus, a deviation from this principle should only happen when absolutely necessary.
Keywords: Europe, Denmark, Banking, BRRD2, Crisis Management Framework, Resolution Framework, MREL, Bail-In, Danish FSA, Central Bank of Denmark
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
CNB Decides to Maintain Countercyclical Capital Buffer Rate at 0.50%Related Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.